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Eminent Domain
Ruling on Denbury Resources pipeline could have extensive reach

Ruling on Denbury Resources pipeline could have extensive reach

Fort Worth Star Telegram  Aug 30, 2011 By Jack Z. Smith

 

A Texas Supreme Court ruling against Plano-based oil producer Denbury Resources, questioning its exercise of eminent domain in constructing an $850 million pipeline, could potentially affect construction of other proposed pipelines, observers say.

Texas' highest civil court ruled Friday that Denbury had not properly established that it was a "common carrier" offering its pipeline for "public use" and therefore had no right to exercise eminent domain to run across a swath of farmland in Jefferson County in southeast Texas. The court sided with Texas Rice Land Partners, which owns the property, and tenant farmer Mike Latta.

The Supreme Court reversed a decision by the 9th Court of Appeals in Beaumont and remanded the legal fight back to a state district court in Jefferson County that had ruled in favor of Denbury. The lower court now must determine whether the Denbury pipeline provides a legitimate "public use."

The pipeline, which was completed in December, carries carbon dioxide produced by Denbury from underground deposits near Jackson, Miss., and transported through Louisiana to the Hastings oil field in southeast Texas, where it is injected to enhance petroleum recovery.

Pipeline companies in Texas have the power of eminent domain. But before they can exercise that power, the Texas Railroad Commission must grant them "common carrier" status.

The Supreme Court said Denbury received the status merely by placing an "x" in a box on a commission form, indicating that the pipeline would be operated as a common carrier. As such, it would provide a public benefit and public use by transporting needed products owned by others, such as oil, natural gas or carbon dioxide, in exchange for a fee.

The court said, however, that a pipeline operator is not a common carrier if it transports a gas "only for its own consumption" and that "portions of Denbury's own website ... suggest the pipeline would be exclusively for private use."

The court said that Denbury's construction of the pipeline "leads to a result that we cannot believe the Legislature intended, namely a gaming of the permitting process to allow a private carrier to wield the power of eminent domain." The Texas Constitution does not allow the taking of property for private use, the court noted.

John McFarland, an Austin attorney, said Tuesday that he thinks the ruling will have broad implications by giving lawyers an opportunity, "at least in some circumstances," to challenge pipeline operators claiming to be common carriers serving a public purpose.

McFarland said he posted information about the Supreme Court ruling on a blog for oil and gas lawyers because he believes that it has potential beyond the Denbury case.

Denbury President Tracy Evans agreed that the Supreme Court ruling could potentially be applicable to other cases involving pipeline construction and eminent-domain issues.

"I think it would actually be applicable for water or sewer [lines] or anything else," he said in a telephone interview.

Evans said the company plans to ask the Supreme Court to grant a motion for rehearing on the issue. But he acknowledged that it appears the case will "continue at the district court level."

Evans said the 24-inch pipeline, which is about three to four feet underground, runs under 1.8 miles of the Texas Rice Land Partners property, which still has a rice farm. Typically, a pipeline has a right-of-way easement about 50 feet in diameter, Evans said.

Jack Z. Smith, 817-390-7724

http://www.star-telegram.com/2011/08/30/3324738/ruling-on-denbury-resources-pipeline.html